I have enough money to last me the rest of my life, unless I buy something.

– Jackie Mason

The symptom: Household inventory drawdowns seem like frugality.

The example: This past year you instituted a no-shopping weekend every other week. You did not buy any groceries or household products on those weekends. Instead, you simply ate and used only what you had on hand in your house. It sure seemed like you were spending a lot less money, but as you total things up at the end of the year, you are surprised to find that you have spent about the same as the prior year.

The example: Last year you saved €500 every month by transferring the money from your checking account to your savings account. This year, however, that approach just does not seem to be working. There never seems to be enough money in the checking account to transfer. You are puzzled because both your income and your expenses appear to be about the same as last year.

The concept of opportunity cost alluded to above is extremely important in financial management; in fact, some commentators would contend that it is the single most important concept.

– Jim McMenamin

This post is not going to be a general guide to baby related expenses. Instead, this article will be just a simple warning to prospective parents not to miss what might be one of your biggest expenses, and yet ironically, the one you might totally overlook.

Before you spend, earn.
Before you invest, investigate.
Before you quit, try.
Before you retire, save.

– William Arthur Ward

The Magic Number

Whole books have been written about how much money is needed to retire. Many websites have retirement calculators that will tell you how much you need to retire. This is the so-called magic number – the net worth you will need to retire. Based on this number, many calculators will even tell you how much you should be saving for retirement or how much you should be contributing to your (subsidized) savings plan. Other apps will calculate your retirement risk. They may calculate the odds that you will run out of money in retirement by a certain age, or they may tell you what investment mix provides the optimal risk for you. In order to properly discuss the magic number, we will need a little background information.

Perfection is attained not when there is nothing left to add, but when there is nothing left to take away.

– Antoine de Saint-Exupery

The average cost of a wedding is now about €25,000. Many couples spend significantly more. Clearly this is a large sum of money and a good candidate for a budget review. Yet unlike a vacation, it is not quite so easy to restrict wedding expenses into a tight budget. First of all, most people expect (or at least hope) that their wedding is a once-in-a-lifetime experience, which is worthy of a once-in-a-lifetime expense. Second, wedding expenses involve a diverse set of emotional items, from childhood dreams to family traditions to social expectations.

A vacation is what you take when you can no longer take what you have been taking.

— Earl Wilson

Let us talk about vacation!

This Post is Not About Cheap Travel Deals

First of all, let us make sure we have understood the title of this post. This article is not about how to save money on your vacation. (The world does not really need yet another 200 word blog post that repeats the same “10 Ways To Save Money” bullets from every other article.) This post is about how to plan ahead for vacation costs, how to work a vacation into your budget, and how to stick to the vacation budget that you have set. Indirectly, of course, you may save money by sticking to your budget and not spending more than you intended.

A man’s accomplishments in life are the cumulative effect of his attention to detail.

— John Foster Dulles

Start with Principal and Interest

This is your purchase price spread out over the length of the loan along with the finance cost of delaying the payments from the date of purchase. For example, if you buy a €200,000 house with a 10% down payment, and you borrow with a 30 year fixed rate mortgage at 4% interest, then your monthly PI (principal + interest) = €859.35. This is the one part of your housing cost that is constant and predictable, but unfortunately there are many other costs.

An professor and his student were walking. The student notices €50 lying on the sidewalk and says, ‘Look! €50 on the street!’ The professor replies, ‘Rubbish. Markets are efficient. If there were really €50 on the sidewalk, someone would have already picked it up.’
So both keep walking.

When people need to cut their budget, they generally start the process by attempting straightforward ideas:

Reductions: “I will try going out to eat less often.”
Eliminations: “I do not need to take a trip this year.”
Substitutions: “Maybe I can find a cheaper mobile phone contract.”

Eventually, however, you will exhaust all the low hanging fruits. If you attempt to hold your budget steady, you will need to continue to make routine cuts in order to combat inflation. It will not take long until all the straightforward cuts have been made. Now what do you do?

Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.

— John Maynard Keynes

We suppose that when most people are presented with “price segmentation” as the stimulus, no synapses fire in the brain. At best, a few people may have a vague recollection of some concept from a marketing course long forgotten. This is an unfortunate state of affairs and the purpose of this article is to show the importance of price segmentation to the average consumer.

If time be of all things the most precious, wasting time must be the greatest prodigality.

— Benjamin Franklin

We suppose this post might disappoint those who are looking for a budgeting software review or an angry post about which product is best, but we need to state what we really believe: your choice of budgeting software will not significantly affect the quality of your household budget and it is probably better not to spend a lot of time selecting the perfect budgeting software for you.

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